Paul Tudor Jones, the billionaire investor who heads the Tudor Investment hedge fund, told CNBC Monday that this week's Federal Reserve meeting is the most important of Chairman Jerome Powell's career.
Jones said Powell faces a tremendous challenge in holding to the Fed's narrative that inflation pressures are "transitory" following data last week that showed the fastest consumer price increases in more than a decade and a reading of the Fed's preferred PCE Price Index gauge, which showed core prices rising at the fastest pace since 1992.
"I think this Fed meeting could be the most important meeting of Jay Powell's career and certainly the most important Fed meeting of the past four or five years,' Tudor Jones said. "And the reason why is because we have had so much incoming data that challenges both their mission and their model."
"How they react to that will be extraordinarily important and signaling to investors how they should deal with their portfolios going forward," he added. "You have to remember that the Fed is operating now with a single mandate; their stated goal is maximizing employment and you can almost see how important that is to them."
"With employment, the Fed wants to see outcomes, with inflation, they insist its transitory," Tudor Jones said. "It's an intellectual incongruity that risks damaging their credibility if they're wrong."
Tudor Jones' comments, however, come amid one of the sharpest pullbacks in Treasury yields in more than a year, and the biggest gain in long bets -- as based on CFTC futures data -- in nearly four years as bond markets appear to accept the Fed's view that 'transitory' inflation pressures will ease over the second half of the year.
Inflation data itself, however, is moving in a singular direction: Core inflation, which strips out volatile prices in food and energy products, is rising at an annualized 8.3% clip over the past three months, the fastest since 1982. Headline inflation, in part powered by year-on-year comparisons in food and energy, is running at 5%, the fastest in more than 13 years.
"I'm going to watch the Fed on Wednesday, and if they treat these numbers with nonchalance, then it's just a green light to bet heavily on the inflation trade," Tudor Jones said.